News and views
Global uncertainty drives global risk aversion overnight. The conflicting signals and rumours regarding nationalisation of banks such as Citigroup drove investors to take the safest path and shun risk, sending the S&P500 down 2% by NZ’s open, the Dow Jones Industrials touching 1997 levels. In breaking news this morning, an announcement on the Citigroup situation is expected later today or tomorrow, and insurance giant AIG is expected to announce a US$60 billion loss, likely to be followed by a request for more government assistance. Oil followed the theme, down 3%, as did the USD index, +1%. Most other asset classes were little changed.
NZD followed AUD higher to 0.5183, and then fell a cent, not offering any new clues from the price action. Yesterday’s Jan credit card transactions were 1.7% higher mom, but this statistic is a less reliable guide to retail sales than the more complete electronic transactions report, and so we take little from the release.
AUD/USD managed a final push in this two-day rally, to 0.6550, before negative EUR comments brought it back to 0.6435. AUD/NZD washed around in a broad 1.2580 to 1.27 range.
EUR’s early session surge to 1.2992 was Citigroup-inspired, and the ensuing fall attributed to Fitch concerns regarding Austria, as well as ECB Trichet’s reiteration of the negative Eurozone outlook. Quashed talk of a Eurozone bond issue to assist weaker members also contributed. USD/JPY reached almost 95, as deteriorating fundamentals remove its former safe-haven status.
US Dallas Fed factory index falls from –50.5 to –57.3 in Feb. Production, orders, shipments, jobs, the workweek and investment were all weaker. This result mirrors the NY and Philly Fed surveys, which also rose in Jan but then fell away again in Feb. Separately, the Chicago Fed published its national activity index for Jan (a summary of 85 previously released indicators). It rose from -3.65 to -3.45, still very weak and if the Fed business surveys are to be believed, it will be a short-lived rise.
Canadian retail sales slump 5.4% in Dec. Unit auto sales were already known to have slumped 15% in Dec, and gasoline sales were down 12% on lower prices. But even excluding these factors, core retailing was down an exceptionally weak 1.8%, with broad-based and steep losses across furniture, building supplies and clothing. More evidence that the domestic economy is slowing sharply.
Outlook
NZD continues to range between 0.50 and 0.52, and shows no signs of an impending breakout. Today’s price action should be confined to that range. We expect that break will eventually be to the downside, targeting the high 0.40’s.
